JOIN USAccording to Kingfisher CEO Sanjay Aggarwal, this would be done by reducing premium business class cabin and increasing the number of full service economy class seats, leading to around 10 percent increase in capacity, but with the existing comfort levels.
“The reconfigured aircraft will have the seat equivalency of a low fare carrier but an opportunity to generate much higher revenue as demonstrated by current yields,” Aggarwal said. While Kingfisher will achieve incremental business class revenue as a result of wider and uniform availability, the airline would also generate incremental revenue through its increased full service economy class capacity, he added.
Dismissing speculation in some sections of the media, Aggarwal said there would be “no reduction in Kingfisher’s fleet size or its network of 60 domestic and eight international destinations”.
Explaining the Kingfisher’s decision to focus on the full service segment, Aggarwal said that operating costs of low cost carriers (LCC) and full service carriers in terms of fuel, airport charges, engineering, maintenance and crew costs were similar. Full service carriers incurred additional costs on global distribution, in-flight catering, ground amenities and the frequent flyer programme. But, these were more than recovered through higher yields, he said.
Touching on the competition aspects, Aggarwal said that besides the large number of new aircraft orders placed in 2004-05, Indian LCCs had recently placed orders for more than 250 new aircraft.
In the past couple of years, capacity induction of the LCCs outpaced the demand growth in the domestic market, so the induction of so many additional aircraft in the LCC segment will potentially lead to substantial over capacity and a price war with declining yields, he said.
Business-related travel, on the other hand, was increasing significantly as executives preferred full service carriers, he said. “A detailed study over the last six months during the high oil price regime has shown Kingfisher’s full service segment has generated higher yields and load factors, consistent with the assessment that the business travel segment is more sustainable than the extremely price sensitive low fare segment,” Aggarwal said.
Of the incremental yield, 25 percent was spent on providing the extra services associated with a full service carrier with the rest 75 percent as net contribution to the bottom line, he said. In India, there are five airlines in the LCC segment while three - Air India, Jet Airways and Kingfisher Airlines - operate in the full service category.
Though competition existed in the full service segment, KAL said it would be more intense in the LCC space.